The ability to collect payments owed from your customers in a professional and timely manner can mean the difference between success and failure for your business. Companies that are successful at promptly collecting monies owed usually have a payment collection strategy in place before entering into relationships with new customers. These proactive plans are aimed at avoiding the difficult, lengthy, and often contentious legal steps that are often necessary when attempting to collect debts that have become long overdue. This article explains how to prevent late payments from customers.

Steps

Method1

Choose Your Customers Carefully

1

Run a credit check, if appropriate given the type of business transaction and the dollar volume involved. It may not be worth the risk to enter into a business arrangement with a prospective customer who has already established a poor credit history.

2

Ask for and contact business references to find out what others think of the business dealings they've had with the prospective customer.

3

Ask for a reasonable down payment from new customers before providing goods or services.

4

Establish a credit limit at the beginning of the relationship with a new client. The limit could be based on the quality of their existing credit or their monthly, quarterly, or annual sales volume. Credit limits can always be raised later if the customer develops a history of prompt payments with you.

Method2

Create Incentive for Prompt Payment

1

Offer an early payment option to clients who pay their bills within a specified time period. For example, customers might receive a 2 percent discount for paying a bill within 10 days.

2

Offer as many payment options as possible, including online payment, if you can. The easier it is for your customers to pay, the more likely they are to do so promptly.

3

Assess accrued interest charges beginning on the first day the bill becomes late. Make sure this policy is clearly stated on all invoices.

4

Add a statement to your contract or service agreement that clearly states that the client or customer will be responsible for all fees associated with bill collection.

Method3

Get Your Invoices Noticed

1

Use colored paper and colored envelopes for more visibility in a stack of white papers and envelopes.

2

Follow up on e-mail invoices with a phone call and/or a hard copy invoice sent by mail if you haven't received payment within a week or so of the due date. It's easy for an e-mail invoice to end up in a spam folder or to be inadvertently deleted because the recipient thought it was a marketing message.

3

Assign at least one person on your team who is specifically responsible for payment collection. That person should stay on top of all outstanding invoices and send reminders or make courtesy phone calls if payment hasn't arrived within a week or so before the due date. There should also be a strategy in place on how to deal with unpaid bills at predefined intervals once the payments first become late.

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Tips

If you modify an existing billing and collection policy or initiate a new one, allow sufficient time to carefully plan, vet, and introduce the new policy to your existing customers. Your new policy may require that your customers make some changes in the way they've been doing business as well.